Battle of the giants - tech vs insurance

Are tech giants like Google and Amazon really moving into insurance?

History shows that Google can have influence over any industry, no matter how entrenched. Markets that have already felt Google’s disruptive presence include healthcare, travel and navigation, so it should come as no surprise that insurance could be next. The evidence for Google's intentions for insurance, and Amazon’s capability for it is stacking up, and it seems to be a leading concern for insurers. So what would it actually mean? Can these tech giants really threaten the position of traditional insurers? We think so, and here’s why.

Where’s the threat?

Simply put, they have a number of huge advantages. These advantages could add to the building pressure on insurance companies to either swim the tides of progress, or sink beneath the waves.

Here’s where the tech giants could excel:

Data

Something that Google and Amazon have plenty of and the capability to use to their advantage. Of course they would want to move into a trillion dollar marketplace where data is the most powerful asset. Targeting more specific market segments in a way that maximizes profit will simply be an extension of what they already do.

A culture of innovation

In fact, everything Google does is based on data, including optimizing its work environment. The company is continuously working on their culture, trying to attract the best and brightest to give their most, while always looking for new ideas in unexpected places. The company encourages flexible, if long, work hours, provides endless perks for its staff and opportunities for them to put innovative ideas into action.

Amazon, following a different philosophy, has been described as “Purposeful Darwinism” a harsh, punishing environment where the only constant is the drive for innovation and excellence. Their employees are called to constantly question everything, including their coworkers, and the phrase “that’s the way it’s always been done” is a death knell for whatever “that” is.

Better technology (much better)

It should go without saying that big tech companies operate with state of the art technology. They’re at the forefront of tech trends, and developing their own systems means no long risk-averse procurement procedures for anything new. They don’t have old legacy systems to slow them down. Their operational costs are lower and they can move faster to take advantage of opportunities.

Machine learning

One of the biggest of those opportunities is presented by machine learning, a technology that has the potential to change the way insurance is developed, managed and sold, perhaps more than any other recent advancement.

After Google open sourced its AI engine late last year, Chris Nicholson, who runs a deep learning startup called Skymind commented that “Google is five to seven years ahead of the rest of the world.” Their deep learning technology is miles ahead of most others in the space, applying that to insurance could have colossal results for the industry.

The Amazon Machine Learning Service is a tool from Amazon that provides developers with smart, predictive machine learning technology. Also at the front of the pack for AI, Amazon has been using machine learning since its inception.

Digital Communication

These tech companies are very good at communicating via different digital channels, it’s inherent to the way they operate. Both were born on the internet, both have a deep understanding of how people use the internet, and how to make the most of that behaviour.

Millennials

The fact that the next biggest market in life insurance are millennials also strengthens their position. Millennials like to identify themselves with a brand they love, are tech savvy, and seek out companies they feel they can trust, all areas that these large tech companies excel at. This survey from Accenture reveals that 23% of 6000 current insurance customers would consider insurance products from online service providers such as Google and Amazon.

Exceptional online purchasing experience.

In insurance, we see notable changes already in the shift towards offering not just product information, but also the ability to purchase online. BC India’s research shows that Life Insurance digital channel sales are already at 4% in the US and Germany, and according to Accenture’s study insurance sold through digital channels could reach €25 billion annually in Europe in 2016.

Amazon and Google are no strangers to online purchasing, with Amazon now the most valuable retailer in the USA despite all its sales being made online, and Google owning multiple price aggregation services.

How to compete

Google and Amazon are heading into insurance with their expertise in innovation. Born as digital companies, they clearly have some advantages. Despite the very real threat, Insurance providers shouldn't forget though that 200 years of experience is hugely valuable.

For insurance companies it is now a matter of catching up with innovation and technology. Perhaps a more controversial view is that these new entrants should be seen as saviors of the industry, forcing change that was happening too slowly on its own. For those that can analyse the real advantages these companies have, and compete with the same level of innovation, the competitive opportunities are huge.

Google’s Jared Cohen, founder of Google Ideas shared his views on innovation in insurance at the Acord Conference 2015 asserting that “great innovation is always solving a problem, and anybody who works in the insurance space is on the cutting edge of what types of risk and challenges individuals face.” As if throwing a lifeline, he outlined the key for insurers to stay relevant: “Forcing yourself to speculate what types of problems people will be concerned about before they happen is the best path to innovation.”